The Role of Foreign Banks in Emerging Banking Sector in the Developing Countries like Pakistan

Abstract

Banking sector plays a significant role in the development of a country, that’s why the financial advisors of the country place a high priority on the growth of the banking sector. Efficient banking system gives direction to the basic policies regarding micro and macro level stability and instability. There is a huge body of literature which confirms that banking system is an important indicator of economic growth. Even some early literature has found an active correlation between financial development and economic growth. Some recent research literature has also concluded that financial development increases the economic growth. Majority of governments are working towards the opening up of their banking system for foreign banks to increase competition, which in turn reduces the administrative costs, lowering banks rate of return and decreasing net interest margins. Researchers, academics and policy makers are studying the impacts of foreign bank entry in the domestic markets. Some researchers have found that foreign bank entry has different impacts in different economies and it is hinged upon the economic development level.

Keywords: Profitability Efficiency, Domestic Banks, Foreign Banks